With only one year of budgetary surplus under our belts at the federal level, the spenders are out in force. Predictably, the policy debate on Parliament Hill has degraded into a one-dimensional battle between tax cuts and increased spending.

The real issues are much more complex. The debate should be about creative public policy that would engage the public, private and non-profit sectors in the search for stronger growth, a rising standard of living and a better quality of life for all Canadians.

Throwing money at our problems is not the answer. We’ve been there and done that. We need to face our challenges with greater candour and honesty. We need to dispense with the old ideological shin guards and begin to use some "out-of-the-box thinking" and new ideas.

Some of the answers are staring us in the face. Just look south of the border. Our unemployment rate stands today at 8.3 percent versus 4.2 percent in the United States (a thirty-year low).

The United States economy appears to be lifting virtually all boats. The unemployment rate for high-school dropouts has declined to 6.1 percent, real wages are increasing across all income levels, and productivity growth surprises on the upside almost every quarter. Business and consumer confidence are both at all time highs. The United States is a few months away from registering the longest economic expansion ever. That day — early next year — will surely be a day for Canadian policy makers to reflect upon.

A new American study entitled Unemployment and Jobs in International Perspective suggests that continuing fiscal restraint and less public spending does in fact contribute to higher economic growth and lower unemployment. In comparing the 24 members of the Organization for Economic Cooperation and Development (OECD), the Joint Economic Committee of the Congress of the United States study reaches the following conclusions:

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  except for the United States, the G-7 economies have experienced an increase in unemployment which is not explained by a systemic increase in real unit labour costs;
  
  
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  longer term levels in unemployment are influenced by structural and institutional factors, including the size of government;
  
  
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  the bigger the relative size of government, the higher the long-term rate of unemployment;
  
  
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  if high-tax countries were to lower their tax burdens as a percentage of output by ten points, their long-term rate of unemployment would fall by three percentage points.

The accompanying graphic depicts government tax revenues as a percent of GDP along with unemployment rates for the G-7. These numbers suggest that bigger government and higher unemployment rates go hand in hand.

By extension, using budgetary surpluses to return government to its expansionary ways means sapping economic vitality and dynamism. It means dooming Canadians to permanently higher levels of unemployment. This is exactly the situation we are facing at the federal level at the present time.

Some say we are just paying the price for a more "egalitarian" society. Others suggest that northern European economies such as Finland, Luxembourg, the Netherlands, Switzerland and Denmark are doing quite well with their own public-private sector mix. But we’re missing the point — we are here in North America sitting beside the strongest economy in the world, competing against and collaborating with its private sector participants. We need to benchmark ourselves against the United States.

Yes, there was a need in the last federal budget to increase expenditures in health care and in other areas. Yes, governments need to continue to "invest in Canadians". But we seem to be doing this blindly and without any serious look at other possible answers. Are there other ways to achieve our public policy objectives? The answer is an obvious and emphatic yes. There are always alternatives.

Let’s take the issue of children. Children First, a Boston-based childcare company, provides short-term childcare for parents. This company is growing by 50 percent per year. Private sector employers, including some in Canada, are embracing this concept as a cost-saving service for employees because they know that it will alleviate the concerns of parents for their children and reduce absenteeism — increasing productivity for the corporation.

This is a win-win situation for parents and the private and public sectors. As the labour force participation of women continues to increase, and as our society gets older, we are going to need more such innovation here in Canada. Why? Because the public sector simply will not have the resources necessary to fill these needs – unless it decides to increase spending dramatically and raise taxes instead of cutting them. But in partnership with the private sector, and as long as it makes sense, the possibilities and opportunities will be endless.

Dr. Fraser Mustard of the Founder’s Network and the Canadian Institute for Advanced Research is a leading advocate of the benefits of investing in early childhood development, but he also has spoken out on the need to reduce taxes, especially on capital gains from investment in innovative enterprises.

He suggests, as did a recent issue of Fortune Magazine, that "businesses that will be highly regarded in the future … will be businesses that can put in place family friendly systems with early child development and parenting centres".

This is precisely why the debate between tax cuts and more government spending, whether on children or in other areas, is the wrong debate. Canadian governments can provide smart, sensible public policies without sacrificing urgently needed tax cuts.

Dr. Mustard said it best before the House of Commons Standing Committee on Finance: "Canadians have been competitive but I think that you have to watch what your incentive structures are really like … A little incentive doesn’t hurt". In Canada’s case, greater incentives for creative solutions would go a long, long way!